Key Takeaways:
A class-action lawsuit was filed against Upstart Holdings, Inc. (NASDAQ: UPST) after the fintech company revealed its artificial intelligence model was suppressing loan approvals, leading to a significant cut in revenue guidance and a sharp stock decline.
According to the complaint, the company made false and misleading statements to the market regarding its “Model 22” AI. The lawsuit alleges that Upstart overstated the model's accuracy and failed to disclose that it "frequently overreacted to negative macroeconomic signals," negatively impacting business performance.
Shares of Upstart fell 9.71%, or $4.49 per share, to close at $41.75 on November 5, 2025, the day after the company disclosed the model's issues. On the same day, Upstart reduced its full-year 2025 revenue guidance by $44 million, from approximately $990 million to $946 million. The class period for the lawsuit covers investors who purchased securities between May 14, 2025, and November 4, 2025.
The lawsuit contends that Upstart’s public statements were materially false and misleading throughout the class period, resulting in damages to investors when the true details entered the market. Investors now have until June 8, 2026, to file a motion with the court to serve as the lead plaintiff for the class.
The core of the allegations centers on Model 22’s overly conservative assessment of credit and macroeconomic conditions. This reportedly suppressed loan conversion rates, directly impacting fee revenue. The company had previously raised its FY 2025 revenue guidance to $1.055 billion in August 2025 before the subsequent reduction three months later. Several national law firms have issued notices reminding investors of the pending litigation.
The stock's decline has brought its valuation to levels not seen since the beginning of the class period, putting pressure on the company to address the allegations. The outcome of the lead plaintiff selection on June 8, 2026, will be the next major catalyst, setting the direction for the litigation against the company.
This article is for informational purposes only and does not constitute investment advice.
